A Greek exit from the eurozone may be needed in order to persuade Germany to
sign up to the measures needed to secure the survival of the single
currency, George Osborne said on Tuesday.

The Chancellor said he did not know whether a Greek exit was necessary to pave the way for the establishment of a eurozone banking union and eurobonds.

Speaking at a CEO Summit hosted by The Times, Mr Osborne said: "I ultimately don't know whether Greece needs to leave the euro in order for the eurozone to do the things necessary to make their currency survive.

"I just don't know whether the German government requires Greek exit to explain to their public why they need to do certain things like a banking union, eurobonds and things in common with that.

"I would suspect that if you had a eurozone finance minister here, they wouldn't really know the answer to that."

Mr Osborne's comments come days ahead of Greece's election re-run on June 17, and risks stoking tensions further with the eurozone.

The Chancellor also voiced frustration over the €100bn bail-out of Spanish banks. He said it was "depressing" that the eurozone authorities did not take advice that they should recapitalise banks directly, rather than funnelling support through the state.

"What is depressing ... is that everyone said to the eurozone that if you do not directly recapitalise these banks, if you do it via the Spanish sovereign, then you are not going to convince the market that the Spanish sovereign is entirely credible ... and yet they went ahead down this route," he said.

"The frustrating thing about all of this ... if we are always in our reaction to every problem is 'too little too late, not quite enough,' then we are going to have a long period of uncertainty and fragility within the eurozone.

"At least people must be beginning to see that just leaving the situation as it is and fixing each problem as it arises is just going to make a bad decision worse."

Mr Osborne has repeatedly argued that the "remorseless logic" of monetary union implies that countries using the single currency will also have to adopt some degree of fiscal integration, which could take the form of eurobonds to spread the burden of debt across the 17 eurozone nations.